(MarketWatch) -- Since the euro touched a four-year low against the U.S. dollar just over a month ago, the shared currency has jumped a whopping 9.2%.
But analysts don't believe that's because everything is suddenly just peachy in the euro-zone and the worries about sovereign debt that drove the currency to that low have disappeared.
The euro sold off pretty steeply from about $1.51 in November because of worries that the sovereign-debt problems would drive away investors in the region and the fiscal austerity measures to address the deficits would put a lid on economic growth. It fell under $1.19 in early June.
People who had taken positions that would benefit from a weaker euro -- including shorting the currency -- are now on the other side of that trade, analysts said. Or at least they're unwinding the bets.
"After watching the euro shoot skyward like Wile E. Coyote with an Acme rocket on his back over the last few days, it's more likely that traders, seeing that $1.30 cliff face approaching, decided it was time to pull the plug," said Dan Cook, senior market analyst at IG Markets.
Data that aggregates traders' positions in currencies bears that out in recent weeks.
Net long positions in the U.S. dollar -- bets that it would appreciate -- declined for a fourth week ended July 6, according to Morgan Stanley. The level of net longs was the lowest since March.
At the same time, traders halved their short euro positions, Morgan Stanley said.
And indeed, one positive about a weaker euro is that it makes exports cheaper to sell abroad -- a good thing for Europe's manufacturing-heavy economy.
"Growth isn't falling off a cliff" in the euro-zone, said Michael Materasso, who co-manages the Franklin Total Return Fund /quotes/comstock/10r!fkbax (FKBAX 10.00, +0.01, +0.10%) .
The handful of recent U.S. economic reports that have come in weaker than forecast need to be looked at in the broader context, he said. The U.S. was already widely expected to slow in the second half of the year.
"The euro should be weaker," Materasso said. "Our view is we don't see a double dip, but we could see the U.S. economy grow below its potential but not flirt with recession."
There's little potential for the euro to rise above $1.30, Morgan Stanley analysts said in a note Friday.
"Investors have become too pessimistic about the global outlook," they wrote. "We favor a stronger U.S. dollar as the U.S. recovery proves sustainable."
Still, earlier this week, Goldman Sachs said the euro could rise to $1.38 in a year, supported by "reasonably solid" euro-zone growth and fewer disruptions than feared.
The upcoming release of stress tests on European banks should be supportive of the euro but the strength of the rally cannot be justified by recent news, strategists at Barclays Capital said.
The firm expects the results to be perceived positively by markets. If so, it will reduce the likelihood of a large move down by the euro, they said.
Still, it won't last, and the recent rally has been more because of reduced short positions than a big change in investor sentiment, strategists led by Jeffrey Melli wrote in a report.
Barclays expects the euro to fall back to $1.20 in the next three months and trade near $1.25 a year from now.
Deborah Levine is a MarketWatch reporter, based in New York.
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